January 19, 2009

What Really Happened to Circuit City?

Circuit City is now the largest retailer to bite the dust amid the worsening global economic implosion.While many analysts had expected the ultimate demise of Circuit City from the time it announced its Chapter 11 filing last November, it’s nevertheless a bit of a shock.As with anything else, life support is not the same as dead; once something is officially gone…no matter how much the passing may have been expected…it’s still a moment for noticeable pause.

It is at times like these that the analyses of “what happened” begin rolling in from all quarters.For example, some ascribe the closure to the retailer’s decision to lay off 3400 employees in 2007 and replace them with lower-compensated folks in an effort to keep costs down.It was suggested that company morale would suffer, and that customers would be turned off by at least the perception of a resulting downturn in customer service.

That move, however, was not the problem, and neither, really, was any other fundamental business policy implemented (or not) by the one-time retail giant.The problem remains what it has been for many months now: In a world where consumer spending habits are changing significantly and, it seems, permanently, there’s just not the same amount of room in the retail sandbox that there was once.

Indeed, all of the teeth-gnashing and hand-wringing over what should or should not have been happening in terms of managing the business is wasted energy.This comes down to the fact that in a period of historic consumer spending contraction, there’s just not room for everybody.I’m not saying there aren’t management –related reasons for why Circuit City was firmly rooted at #2 (behind Best Buy), but that’s not the same thing as explaining why a company like that goes all the way under.

Going forward, I believe you will see more and more specialty retailers…including those as storied as Circuit City…die off as we become a Wal-Mart-based society of consumers.The ongoing micro-analysis of why a Circuit City ultimately failed in this historically bad economy is akin to obsessing over exactly which thing John McCain did or didn’t say and/or do that cost him the election.In the case of the economy, that which began happening in 2007 and continues to unfold today is resulting in a seismic shift in how Americans view “stuff.”We are not the same people.We want to spend less, use less credit, hang on to things longer.There are just not as many people who can make sense of spending $3,000 for a television as there were three years ago.We are redefining the concept of “have to have,” and the list of items that now make the cut is a great deal shorter than it was just a couple of years ago.Who says old dogs can’t learn new tricks?

Comments

You can follow this conversation by subscribing to the comment feed for this post.

Actually, I quite think the reason of Circuit City's closing was due to its irresponsible laying off of the associates that knew what the hell they were talking about. My being one of the them. People HAVE and WILL lost/lose respect for a company that does that kind of thing. THAT was their downfall. Nothing else. I am, of course, speaking from experience.

My opinion on the subject of Circuit City is one of the worst the company did was take away the commissioned sales counselor. Once they did that the customer dropped tremendously. I worked at Circuit City in 1991 to 1994. This was during our recession right after Desert Storm and Circuit City at that time was making a 4 billion dollar a year profit. The stocks even had split twice. Saleman were trained and cared about the customer. You could no longer find that same atmosphere in CC since the change.